Robert Samuelson decided to blame the 60s again for the economic problems that we are suffering today. He argues that the decision by Kennedy to deliberately run higher deficits to boost the economy and to tolerate a higher rate of inflation gave us all of our current headaches. The former because we ended up with so much debt that we can’t now use large deficits to boost demand and the latter because it led to the runaway inflation of the 70s. It’s easy to show that both contentions are wrong.
First, the decision by Kennedy to run larger deficits did not lead to an increase in our debt to GDP ratio. In fact, this continued to decline through the 60s and 70s. The rise in the debt to GDP ratio was a Reagan era innovation. The ratio actually fell in the Clinton years, so for those keeping score on such things, rising debt to GDP ratios is largely a post-Reagan Republican president story.
Source: Economic Report of the President.
The second part of Samuelson’s argument is also wrong. There are relatively few instances where wealthy countries have seen large debt to GDP ratios. The claim that ratios above 90 percent slow growth confuses cause and effect. For example, Japan had a very low debt to GDP ratio before its stock and real estate bubbles burst in 1990. This collapse gave them both slow growth and a high debt to GDP ratio.
At the most basic level, the logic here is faulty. Government debt is an arbitrary category. If a government sold off assets or the right to tax (e.g. parking meters or patent monopolies) it can reduce its debt to GDP ratios in ways that could not plausibly increase growth. For this reason the idea that there is some systemic relationship between debt and growth is ridiculous on its face.
Finally, Samuelson’s complaint on inflation is badly mistaken. The United States would have benefitted enormously if it had a higher rate of inflation at the start of the downturn. If the underlying inflation rate had been 4.0 percent rather than 2.0 percent at the start of the downturn, a Federal Funds rate of zero would imply a negative real interest rate of -4.0 percent rather than -2.0 percent. This would have allowed monetary policy to provide a substantially larger boost to the economy.
Robert Samuelson decided to blame the 60s again for the economic problems that we are suffering today. He argues that the decision by Kennedy to deliberately run higher deficits to boost the economy and to tolerate a higher rate of inflation gave us all of our current headaches. The former because we ended up with so much debt that we can’t now use large deficits to boost demand and the latter because it led to the runaway inflation of the 70s. It’s easy to show that both contentions are wrong.
First, the decision by Kennedy to run larger deficits did not lead to an increase in our debt to GDP ratio. In fact, this continued to decline through the 60s and 70s. The rise in the debt to GDP ratio was a Reagan era innovation. The ratio actually fell in the Clinton years, so for those keeping score on such things, rising debt to GDP ratios is largely a post-Reagan Republican president story.
Source: Economic Report of the President.
The second part of Samuelson’s argument is also wrong. There are relatively few instances where wealthy countries have seen large debt to GDP ratios. The claim that ratios above 90 percent slow growth confuses cause and effect. For example, Japan had a very low debt to GDP ratio before its stock and real estate bubbles burst in 1990. This collapse gave them both slow growth and a high debt to GDP ratio.
At the most basic level, the logic here is faulty. Government debt is an arbitrary category. If a government sold off assets or the right to tax (e.g. parking meters or patent monopolies) it can reduce its debt to GDP ratios in ways that could not plausibly increase growth. For this reason the idea that there is some systemic relationship between debt and growth is ridiculous on its face.
Finally, Samuelson’s complaint on inflation is badly mistaken. The United States would have benefitted enormously if it had a higher rate of inflation at the start of the downturn. If the underlying inflation rate had been 4.0 percent rather than 2.0 percent at the start of the downturn, a Federal Funds rate of zero would imply a negative real interest rate of -4.0 percent rather than -2.0 percent. This would have allowed monetary policy to provide a substantially larger boost to the economy.
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Okay folks, NPR should feel some real pain on this one. Some of you may recall last week when I beat up on NPR for presenting the views of Joe Olivo, a small business owner, on the Affordable Care Act (ACA). I pointed out that the piece the segment did not put Olivo’s complaints in any context so that listeners would have no way of assessing their validity.
It turned out that I was overly generous. Olivo was not a random small business owner who NPR happened to stumble upon. He is a person that the National Federal of Independent Businesses (NFIB), the lead plaintiff in the suit against the ACA, routinely sends out to speak to the media and to testify at public hearings. I discovered this from a blogpost at Balloon Juice.
One might have thought NPR would apologize for not properly identifying Mr. Olivo in its segment. However, if you thought that, you would be wrong.
Balloon Juice tells us that Mr. Olivo was back last night. He told All Things Considered listeners that a higher minimum wage is a really bad idea and would force him to lay off workers. Once again Mr. Olivo was presented as a random small business; his ties to the NFIB were not mentioned.
Come on folks, this is really Journalism 101. It’s fine to put Mr. Olivo on the air and let him give his story, but don’t present him as a random small business owner. The reason that you are talking to him is because the NFIB sent him to you. How could you not give this information to your audience?
If NPR keeps this up they should bill the series as Joe Olivo versus the Regulation Monster.
Okay folks, NPR should feel some real pain on this one. Some of you may recall last week when I beat up on NPR for presenting the views of Joe Olivo, a small business owner, on the Affordable Care Act (ACA). I pointed out that the piece the segment did not put Olivo’s complaints in any context so that listeners would have no way of assessing their validity.
It turned out that I was overly generous. Olivo was not a random small business owner who NPR happened to stumble upon. He is a person that the National Federal of Independent Businesses (NFIB), the lead plaintiff in the suit against the ACA, routinely sends out to speak to the media and to testify at public hearings. I discovered this from a blogpost at Balloon Juice.
One might have thought NPR would apologize for not properly identifying Mr. Olivo in its segment. However, if you thought that, you would be wrong.
Balloon Juice tells us that Mr. Olivo was back last night. He told All Things Considered listeners that a higher minimum wage is a really bad idea and would force him to lay off workers. Once again Mr. Olivo was presented as a random small business; his ties to the NFIB were not mentioned.
Come on folks, this is really Journalism 101. It’s fine to put Mr. Olivo on the air and let him give his story, but don’t present him as a random small business owner. The reason that you are talking to him is because the NFIB sent him to you. How could you not give this information to your audience?
If NPR keeps this up they should bill the series as Joe Olivo versus the Regulation Monster.
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That is what listeners to a segment that bemoaned the fact that China’s population might decline in the decades ahead undoubtedly concluded. The piece presented the views of people who saw the prospect of a smaller Chinese population as being a potential crisis, but not one word from anyone who indicated that it could potentially benefit both China and the world.
In terms of global warming and demand on resources more generally, the more people there are in China and the world as whole, the greater the pressure on the environment. In fact, if one (wrongly) assumes, as this piece implies, that more Chinese will make each person in China richer then the negative impact on the environment will be more than proportionate to the increase in population.
The other part of this piece is incredible absurd is the claim that China will somehow be strained paying for a growing population of retirees. The piece includes this segment:
“FENG [a Chinese demographer]: The magnitude of the challenge brought about by population aging is mind-boggling. China now has about 180 million elderly population. In less than 20 years, by 2030, that number is going to be 360 million. That’s going to be larger than the total population of the United States right now.
LANGFITT [the NPR reporter]: How is the country going to pay for that?
FENG: It’s a very scary situation.
LANGFITT: As the population ages, health care costs are expected to soar. And with couples having fewer kids, there will be far fewer workers to pay for that health care. Again, Wang Feng.
FENG: I think the harm has already been done. So even if China, say, stopped one-child policy tomorrow, this new birth would not become adult labor until 20 years from now.
LIANG: The situation is actually pretty gloomy, pretty bad, pretty urgent.”
Okay arithmetic fans, let’s see how China can pay for this. If we look at the IMF’s projections for China, we see that they expect per capita GDP to rise by 58 percent from 2011 to 2017, the last year for its projections. This is a per capita growth rate of 8 percent a year. Let’s hypothesize that this growth falls by 75 percent (a truly remarkable slowdown) to just 2 percent annually for the remaining 13 years to 2030. That would mean that China’s per capita GDP would be twice as high in 2030 as it was in 2011, in spite of the fact that the country had twice as many retirees.
The implication of this fact is that all the workers in the country could have living standards are at least twice as high as they are today and that all retirees can also have living standards that are higher than do current retirees. In fact, the story is likely to be even more favorable since China currently devotes almost half of its GDP to investment. This share would fall sharply as the growth rate declines leaving much more for consumption. (Actually, standard growth measures are likely to understate the benefits of a declining population since they will not pick up the gains from less use of common assets like streets, parks, and beaches.)
So arithmetic fans, there is no story whereby the Chinese will suffer because of plausible declines in the size of their population. You can take a deep breath and go back to enjoying your morning coffee.
That is what listeners to a segment that bemoaned the fact that China’s population might decline in the decades ahead undoubtedly concluded. The piece presented the views of people who saw the prospect of a smaller Chinese population as being a potential crisis, but not one word from anyone who indicated that it could potentially benefit both China and the world.
In terms of global warming and demand on resources more generally, the more people there are in China and the world as whole, the greater the pressure on the environment. In fact, if one (wrongly) assumes, as this piece implies, that more Chinese will make each person in China richer then the negative impact on the environment will be more than proportionate to the increase in population.
The other part of this piece is incredible absurd is the claim that China will somehow be strained paying for a growing population of retirees. The piece includes this segment:
“FENG [a Chinese demographer]: The magnitude of the challenge brought about by population aging is mind-boggling. China now has about 180 million elderly population. In less than 20 years, by 2030, that number is going to be 360 million. That’s going to be larger than the total population of the United States right now.
LANGFITT [the NPR reporter]: How is the country going to pay for that?
FENG: It’s a very scary situation.
LANGFITT: As the population ages, health care costs are expected to soar. And with couples having fewer kids, there will be far fewer workers to pay for that health care. Again, Wang Feng.
FENG: I think the harm has already been done. So even if China, say, stopped one-child policy tomorrow, this new birth would not become adult labor until 20 years from now.
LIANG: The situation is actually pretty gloomy, pretty bad, pretty urgent.”
Okay arithmetic fans, let’s see how China can pay for this. If we look at the IMF’s projections for China, we see that they expect per capita GDP to rise by 58 percent from 2011 to 2017, the last year for its projections. This is a per capita growth rate of 8 percent a year. Let’s hypothesize that this growth falls by 75 percent (a truly remarkable slowdown) to just 2 percent annually for the remaining 13 years to 2030. That would mean that China’s per capita GDP would be twice as high in 2030 as it was in 2011, in spite of the fact that the country had twice as many retirees.
The implication of this fact is that all the workers in the country could have living standards are at least twice as high as they are today and that all retirees can also have living standards that are higher than do current retirees. In fact, the story is likely to be even more favorable since China currently devotes almost half of its GDP to investment. This share would fall sharply as the growth rate declines leaving much more for consumption. (Actually, standard growth measures are likely to understate the benefits of a declining population since they will not pick up the gains from less use of common assets like streets, parks, and beaches.)
So arithmetic fans, there is no story whereby the Chinese will suffer because of plausible declines in the size of their population. You can take a deep breath and go back to enjoying your morning coffee.
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The Washington Post ran perhaps the best ever in-your-face article to the pundits who talk about the skills gap. Just to remind people, the skills gap story is that there all sorts of jobs that are going unfilled because employers just can’t find people with the necessary skills. In this story, the problem with the economy is not a lack of demand, the problem is that unemployed workers just don’t have the skills for the jobs that are available.
This one gets repeated endlessly in spite of the fact that there is no evidence for the story. There are no major sectors of the economy with large numbers of job openings relative to the number of unemployed workers, lengthening workweeks as firms seek to get more hours out of their existing workforce, or rapidly rising wages as firms try to bid away workers from other firms.
Lack of evidence never embarrassed a Washington pundit, but perhaps a compelling story will. A front page article in the Sunday Post reported that PhDs in chemistry and biology are having trouble getting jobs in their field. It reports that many are taking much lower paid positions outside of their field. Perhaps our pundits have a training program that will give these people the skills they need in today’s economy.
The Washington Post ran perhaps the best ever in-your-face article to the pundits who talk about the skills gap. Just to remind people, the skills gap story is that there all sorts of jobs that are going unfilled because employers just can’t find people with the necessary skills. In this story, the problem with the economy is not a lack of demand, the problem is that unemployed workers just don’t have the skills for the jobs that are available.
This one gets repeated endlessly in spite of the fact that there is no evidence for the story. There are no major sectors of the economy with large numbers of job openings relative to the number of unemployed workers, lengthening workweeks as firms seek to get more hours out of their existing workforce, or rapidly rising wages as firms try to bid away workers from other firms.
Lack of evidence never embarrassed a Washington pundit, but perhaps a compelling story will. A front page article in the Sunday Post reported that PhDs in chemistry and biology are having trouble getting jobs in their field. It reports that many are taking much lower paid positions outside of their field. Perhaps our pundits have a training program that will give these people the skills they need in today’s economy.
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In the middle of Washington it can be difficult to get your hands on publicly available government documents. This is undoubtedly why George Will continues to misrepresent what President Obama’s economic advisers said about the stimulus package.
On This Week, ABC’s Sunday morning talk show, Will claimed that Obama’s advisers told him that if he did the stimulus that the unemployment rate would never get above 8.0 percent. Actually, if Will could find the publicly available document written in early January by Christine Romer, the head of the Council of Economic Advisers and Jared Bernstein, Vice-President Biden’s chief economist, he would know that they said the stimulus would create between 3-4 million jobs.
They expected that this rate of job creation would keep the unemployment rate from rising above 8.0 percent. While the stimulus package that got through Congress was somewhat smaller and less stimulatory (more tax cuts, less spending) than the package President Obama proposed, most independent analyses put the job impact in the 2-3 million range.
What Obama’s advisers got wrong in a big way was the severity of the downturn. The economy lost more than 3.1 million jobs in the first four months of 2009. This was a much sharper falloff than they had anticipated, as is clear from reading the document. The stimulus did create roughly the number of jobs projected, the problem was that we needed 10-12 million jobs, not 2-3 million.
President Obama’s team can and should be criticized for underestimating the severity of the downturn (like most of the economics profession). However, none of the evidence to date suggests that they were wrong about the effectiveness of the stimulus.
In the middle of Washington it can be difficult to get your hands on publicly available government documents. This is undoubtedly why George Will continues to misrepresent what President Obama’s economic advisers said about the stimulus package.
On This Week, ABC’s Sunday morning talk show, Will claimed that Obama’s advisers told him that if he did the stimulus that the unemployment rate would never get above 8.0 percent. Actually, if Will could find the publicly available document written in early January by Christine Romer, the head of the Council of Economic Advisers and Jared Bernstein, Vice-President Biden’s chief economist, he would know that they said the stimulus would create between 3-4 million jobs.
They expected that this rate of job creation would keep the unemployment rate from rising above 8.0 percent. While the stimulus package that got through Congress was somewhat smaller and less stimulatory (more tax cuts, less spending) than the package President Obama proposed, most independent analyses put the job impact in the 2-3 million range.
What Obama’s advisers got wrong in a big way was the severity of the downturn. The economy lost more than 3.1 million jobs in the first four months of 2009. This was a much sharper falloff than they had anticipated, as is clear from reading the document. The stimulus did create roughly the number of jobs projected, the problem was that we needed 10-12 million jobs, not 2-3 million.
President Obama’s team can and should be criticized for underestimating the severity of the downturn (like most of the economics profession). However, none of the evidence to date suggests that they were wrong about the effectiveness of the stimulus.
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A NYT piece on another possible round of court battles over the Affordable Care Act (ACA) told readers:
“White House officials have repeatedly underestimated opposition to the health care law. They predicted that public support for the law would grow as people learned more about it.”
This implies that people have learned about the ACA. That does not appear to be the case. According to poll conducted last fall by Kaiser only 45 percent of people knew that the ACA did not create panels that would make decisions about end of life care for Medicare patients. Only 25 percent knew that the bill did not require firms with less than 50 employees to provide insurance for their workers. Only 42 percent knew that the bill does not provide insurance to undocumented workers.
In short, the evidence suggests that the media has done a very poor job in educating the public about the specifics of the plan. (Michelle Rhee would fire all the reporters immediately.) We do not know how people will respond if they learn more about the ACA because this far they have not.
A NYT piece on another possible round of court battles over the Affordable Care Act (ACA) told readers:
“White House officials have repeatedly underestimated opposition to the health care law. They predicted that public support for the law would grow as people learned more about it.”
This implies that people have learned about the ACA. That does not appear to be the case. According to poll conducted last fall by Kaiser only 45 percent of people knew that the ACA did not create panels that would make decisions about end of life care for Medicare patients. Only 25 percent knew that the bill did not require firms with less than 50 employees to provide insurance for their workers. Only 42 percent knew that the bill does not provide insurance to undocumented workers.
In short, the evidence suggests that the media has done a very poor job in educating the public about the specifics of the plan. (Michelle Rhee would fire all the reporters immediately.) We do not know how people will respond if they learn more about the ACA because this far they have not.
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In the middle of an article that is largely devoted to discussing the absurdity of Republicans attacks on the Affordable Care Act’s cost controls for Medicare, given their repeated efforts to slash funding for the program, the NYT told readers:
“such talk underscores how far Republicans and Democrats are from truly squaring with the public about curbing the growth of the major entitlement programs: Medicare, Medicaid and, to a lesser extent, Social Security.”
While the NYT might want to see the growth of Social Security spending curbed, there is no obvious reason that it is necessary. In fact, given the loss of savings among older workers due to the collapse of the housing bubble and the downturn, there are strong arguments for increasing the generosity of benefits.
According to the Congressional Budget Office the program is full funded until 2038 with no changes whatsoever. The increased revenue needed to keep the program fully funded for the rest of the century is a bit more than 5 percent of projected wage growth over the next three decades.
Polls have consistently indicated that people would rather pay higher Social Security taxes than see a cut in benefits. The claim that there is somehow a need to curb the growth of Social Security spending is an expression of the political views of the NYT. It is not a reflection of the finances of the program.
While there is a need to restrain the cost growth of Medicare this is due to the fact that health care costs in the United States are so out of line with costs elsewhere in the world. If per person health care costs in the U.S. were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits.
In the middle of an article that is largely devoted to discussing the absurdity of Republicans attacks on the Affordable Care Act’s cost controls for Medicare, given their repeated efforts to slash funding for the program, the NYT told readers:
“such talk underscores how far Republicans and Democrats are from truly squaring with the public about curbing the growth of the major entitlement programs: Medicare, Medicaid and, to a lesser extent, Social Security.”
While the NYT might want to see the growth of Social Security spending curbed, there is no obvious reason that it is necessary. In fact, given the loss of savings among older workers due to the collapse of the housing bubble and the downturn, there are strong arguments for increasing the generosity of benefits.
According to the Congressional Budget Office the program is full funded until 2038 with no changes whatsoever. The increased revenue needed to keep the program fully funded for the rest of the century is a bit more than 5 percent of projected wage growth over the next three decades.
Polls have consistently indicated that people would rather pay higher Social Security taxes than see a cut in benefits. The claim that there is somehow a need to curb the growth of Social Security spending is an expression of the political views of the NYT. It is not a reflection of the finances of the program.
While there is a need to restrain the cost growth of Medicare this is due to the fact that health care costs in the United States are so out of line with costs elsewhere in the world. If per person health care costs in the U.S. were comparable to those in any other wealthy country we would be looking at long-term budget surpluses, not deficits.
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They may not realize this fact, but that is the logical implication of comments in both the NYT and Washington Post articles on the Friday jobs reports. Both papers complained that high debt burdens are depressing consumption, which would otherwise lead to more demand and more jobs.
In fact, the saving rate is currently under 4.0 percent. In the decades prior to the stock and housing bubbles the saving rate averaged over 8.0 percent. A 4.0 percent saving rate implies that workers are accumulating very little wealth for retirement. It is difficult to see why it would be viewed as a positive development if they saved even less, especially since both papers have repeatedly argued for cuts in Social Security in their news sections.
The NYT article included a quote from Andrew Tilton, a senior United States economist at Goldman Sachs, claiming that the euro zone’s problems have shaved a percentage point off U.S. growth. This is a dubious claim. U.S. exports to euro zone countries are less than 2 percent of GDP. Even if the crisis reduced exports by 10 percent the direct impact would be less than 0.2 percentage points of GDP.
Furthermore, the euro zone crisis has caused investors to turn to dollar assets as a safe haven. Interest rates on long-term government bonds plunged last summer in response to the flaring up of the crisis in Italy. It is likely that long-term rates in the United States are at least 50 basis points (0.5 percentage points) lower as a result of the euro zone crisis. This would offset much, if not all, of the loss in demand due to reduced exports to the euro zone.
They may not realize this fact, but that is the logical implication of comments in both the NYT and Washington Post articles on the Friday jobs reports. Both papers complained that high debt burdens are depressing consumption, which would otherwise lead to more demand and more jobs.
In fact, the saving rate is currently under 4.0 percent. In the decades prior to the stock and housing bubbles the saving rate averaged over 8.0 percent. A 4.0 percent saving rate implies that workers are accumulating very little wealth for retirement. It is difficult to see why it would be viewed as a positive development if they saved even less, especially since both papers have repeatedly argued for cuts in Social Security in their news sections.
The NYT article included a quote from Andrew Tilton, a senior United States economist at Goldman Sachs, claiming that the euro zone’s problems have shaved a percentage point off U.S. growth. This is a dubious claim. U.S. exports to euro zone countries are less than 2 percent of GDP. Even if the crisis reduced exports by 10 percent the direct impact would be less than 0.2 percentage points of GDP.
Furthermore, the euro zone crisis has caused investors to turn to dollar assets as a safe haven. Interest rates on long-term government bonds plunged last summer in response to the flaring up of the crisis in Italy. It is likely that long-term rates in the United States are at least 50 basis points (0.5 percentage points) lower as a result of the euro zone crisis. This would offset much, if not all, of the loss in demand due to reduced exports to the euro zone.
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Washington Post blogger Sarah Kliff tried to find a silver lining in the weak June jobs report. She pointed to the 0.1 hour increase in the length of the average workweek and the 6 cent increase in the average hourly wage. This is not much on which to hang your hat.
The length of the average workweek slips up or down by 0.1 hours pretty much at random. In fact it had fallen by 0.1 hour to 34.4 hours in May, after having been 35.5 hours for several months. This is hard to get very excited about.
The 6 cent rise in the average hourly wage is better news, however these numbers are very erratic and are subject to substantial revisions. (May’s number was revised up by 3 cents in the June data.) Over a longer period, there is not much here to boast about.
The note refers to a 45 cent increase in the average hourly wage over the last year. This is a rise of 1.95 percent, roughly in step with inflation over this period. It’s better that wages keep pace with inflation than if they don’t, but this still means that workers are not sharing in any of the benefits of the economy’s increase in productivity.
In this respect it is worth noting the average wage of production and non-supervisory workers increased by just 1.49 percent over the last year. This group, which consists of more than 80 percent of private sector employees, tends to be somewhat less educated and experienced than the labor force as a whole. The gap between the overall average wage and the earnings of non-supervisory workers implies that more highly educated workers have gotten a disproportionate share of the wage growth over the last year. The wages for the bulk of the workforce have not even kept pace with inflation.
Washington Post blogger Sarah Kliff tried to find a silver lining in the weak June jobs report. She pointed to the 0.1 hour increase in the length of the average workweek and the 6 cent increase in the average hourly wage. This is not much on which to hang your hat.
The length of the average workweek slips up or down by 0.1 hours pretty much at random. In fact it had fallen by 0.1 hour to 34.4 hours in May, after having been 35.5 hours for several months. This is hard to get very excited about.
The 6 cent rise in the average hourly wage is better news, however these numbers are very erratic and are subject to substantial revisions. (May’s number was revised up by 3 cents in the June data.) Over a longer period, there is not much here to boast about.
The note refers to a 45 cent increase in the average hourly wage over the last year. This is a rise of 1.95 percent, roughly in step with inflation over this period. It’s better that wages keep pace with inflation than if they don’t, but this still means that workers are not sharing in any of the benefits of the economy’s increase in productivity.
In this respect it is worth noting the average wage of production and non-supervisory workers increased by just 1.49 percent over the last year. This group, which consists of more than 80 percent of private sector employees, tends to be somewhat less educated and experienced than the labor force as a whole. The gap between the overall average wage and the earnings of non-supervisory workers implies that more highly educated workers have gotten a disproportionate share of the wage growth over the last year. The wages for the bulk of the workforce have not even kept pace with inflation.
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In a piece that has the word “explainer” in its headline, the post proceeds to mis-explain the LIBOR scandal to its readers. The second paragraph tells readers:
“This is a big deal. Remember that JP Morgan scandal a few months back? That was mostly JP Morgan hurting itself. The LIBOR scandal was Barclay’s making money by hurting you.”
The claim is that LIBOR liars cost people money by inflating the LIBOR rate, thereby causing people to pay more on mortgages, car loans and other debts that were tied to the LIBOR. The problem with this claim is that there is no evidence that the mis-reported LIBOR rates had an upward bias. In fact during the financial crisis they were understating the true rate.
This means on average, there is no reason to believe that people paid more on their loans because of the lies than they would have in an honest market. Some people undoubtedly did pay slightly more, but others paid slightly less. And, since the direction of the lies was systematically downward in the crisis period, consumers may have actually benefited from this scam.
The LIBOR scandal is primarily about bankers ripping each other off by using false information to make their trades winners. The bankers deserve to go to jail for this fraud, but their main victims were other traders.
The public did lose in this story but the loss is primarily from resources being devoted to game playing and nonsense in the financial sector which instead could have been devoted to building up the economy. In this sense, the financial sector can be thought of as the equivalent of a massive government agency devoted to promulgating waste, fraud and abuse. The money used to fund this department would be a pointless drag on the economy, just like our bloated financial sector.
In a piece that has the word “explainer” in its headline, the post proceeds to mis-explain the LIBOR scandal to its readers. The second paragraph tells readers:
“This is a big deal. Remember that JP Morgan scandal a few months back? That was mostly JP Morgan hurting itself. The LIBOR scandal was Barclay’s making money by hurting you.”
The claim is that LIBOR liars cost people money by inflating the LIBOR rate, thereby causing people to pay more on mortgages, car loans and other debts that were tied to the LIBOR. The problem with this claim is that there is no evidence that the mis-reported LIBOR rates had an upward bias. In fact during the financial crisis they were understating the true rate.
This means on average, there is no reason to believe that people paid more on their loans because of the lies than they would have in an honest market. Some people undoubtedly did pay slightly more, but others paid slightly less. And, since the direction of the lies was systematically downward in the crisis period, consumers may have actually benefited from this scam.
The LIBOR scandal is primarily about bankers ripping each other off by using false information to make their trades winners. The bankers deserve to go to jail for this fraud, but their main victims were other traders.
The public did lose in this story but the loss is primarily from resources being devoted to game playing and nonsense in the financial sector which instead could have been devoted to building up the economy. In this sense, the financial sector can be thought of as the equivalent of a massive government agency devoted to promulgating waste, fraud and abuse. The money used to fund this department would be a pointless drag on the economy, just like our bloated financial sector.
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